How Do I Start The Short Sale Process

Question

I have a lead on a house that is about to be foreclosed on.
The owner is 12+ months behind on payments.
He is leaving the country in two weeks according to him.
He just wants out.
The house is in great condition. and has a value of nearly $300,000.
I Know he still owes between $150,000 -200,000 on mortgage.
Is this a good short sale candidate and if so what is my next step.
Starting tomorrow his lawyer will be handling this affair. Is this good or bad.
Any help or advice would be greatly appreciated.

J Scott · Answer

Actually it's more like this:

1.  If it hasn't been foreclosed upon yet, you can either buy it outright (pay off the entire mortgage) or do a short sale (get the bank to agree to accept less than the mortgage):

1.A.  Pay off outright.  If the seller owes $200K and the house is worth $300K, you can just pay the $200K, and now you have a house that's worth $100K more than you paid for it.  You win.

1.B.  Short sale.  If the seller owes $200K but the house is worth less than $200K (or about $200K), you may be able to convince the bank to accept a "short" payoff of less than $200K.  As others mentioned, this is a lot of paperwork and could take months, and it will also pretty much require you to purchase the property as opposed to wholesaling it.

2.  If the property has been foreclosed upon, at some point it will go to auction or trustee sale.  This is when you can buy the property on the courthouse steps for a price that is somewhere around what the seller owed at the time of foreclosure (give or take).  You need to pay cash if you buy this way.

3.  If nobody buys at the courthouse steps, the bank regains possession of the property and may list it on the MLS with a real estate agent at some point in the the future.  This is an REO, and by this point, the seller is likely out of the house and the house is vacant (not always, but generally).

Phil Z. · Answer

I find it hard to believe that he would walk away from $100k in equity.  There has to be more to the story ..

Silvio Brigliadoro · Answer

@Edward Powell, why is there an attorney involved? Some Attorneys have the tendency to complicate things, specially if this is a BK attorney. IMHO if the seller does not cooperate with you from the get go, this is not a deal worth pursuing. You could have the seller sign a "3rd. party authorization form" so that you may contact the lender(s) directly in behalf of the borrower and get the story straight. If this is a good short sale candidate and you have negotiated a short pay off, some lenders require many signatures from the borrower(s) at different times, you will also need them to sign the grant deed, if he left the country are you going to be able to get to the finish line ?

Ted Akers · Answer

Hopefully his lawyer knows, or I am sure can find out, the amount owed.  If the numbers are correct (owes $200k and worth $300k) it is not a short sale and you want to try to buy it through his attorney  before the auction.

Wayne Brooks · Answer

If your numbers are correct, this is not a short sale.  A short sale is when the house iw orth less than what is owed.  Have the owner verify what he owes, by getting a pay off from his bank.  Back interest, fees, taxes, insurance, etc. could be much greater than he believes.  The should try to get the best price for the seller.

Matt Devincenzo · Answer

Age really has nothing to do with the equity, he could have refinanced last year or even 3 years ago and it could have lost value since then. You need comps to determine value and a bank payoff amount to determine amount owed. Just because he owed 150K doesn't mean he still does now that he has had legal fees and late fees and everything else added on top of it for the last 12 months or so.

Rob Powell · Answer

I appreciate every ones advice . It was quick and very valuable to me.
Tell me if I understand thing correctly. 
After reading the replies here is where I think I stand.
1) Since he is turning things over to his Lawyer it is probably only in pre-foreclosure. In which I could still place an offer.
2) If it is in foreclosure then it is REO and I could still place an offer only instead it will be to the bank.
The reason I think it may be a good deal is he has lived there 20 years. He actually built it/ or had it built.
It is in a really exclusive neighborhood for OK.
After 20 yrs. there has to be some equity.
I see now that I just need more info on the numbers.

Patrick L. · Answer

If your offer is less than the total payoff then it's going to be up to the bank, and will probably be months for a response one way or another.   If it's really worth a lot more than the offer, then the bank generally will not approve it.  It will depend on what the BPO comes back at.   Don't assume that just because a property is in foreclosure that it's going to sell for half of what it's worth.

Rob Powell · Answer

I tried for 30 minutes to get a amount owed out of him. He kept saying he did not know because he had no paid in so long.
His brother actually told me it is around $200,000.
He gave me his Lawyers number and suggested I call him for the numbers.
I am calling the Lawyer tomorrow.
If I offer less than is owed  is that  feasible course of action.
If he turns everything over to his lawyer

Patrick L. · Answer

If the house sells for more than what he owes on the mortgage then it's no longer a short sale.  A short sale is when the bank agrees to take less than what is owed on the mortgage.  As long as the purchase price covers all of the principal, back interest, late fees, attorney's fees, escrow shortages, etc then the bank isn't even involved.  If that's the case then all you have to do is make him an offer and have him sign off on it.....if the mortgage is covered then that's all there is to it.